Tax reporting for Independent Contractor NQDC.

[ERISA-Bubs]

My understanding is that we do not have to report Independent Contractor NQDC deferrals (Form 1099-Misc, line 12 -- the instructions say this is not required).  However, payments to Independent Contractors under a NQDC Plan are to be reported in Box 1 in the year paid.  This is how we've been handling this.

The problem is we have an Independent Contractor who we paid NQDC to, and reported the payment on Form 1099.  The SSA is now saying the reported payment disqualifies the Independent Contractor from Social Security Retirement Benefits.  They are asking we correct this using Social Security Form SSA-131, but that form only appears to apply to employees (not independent contractors).

I'm having a bit of trouble determining how to correct this.  I'm also not finding straight forward information on whether we reported the payment correctly in the first place. 

• Should Independent Contractor distributions from a NQDC plan be paid using Form 1099-Misc?  The instructions are unclear, unless the payment violates 409A (in which case you use Box 15), but that is not the case here.
• I found some guidance that suggests we use Form 1099-NEC, Box 1, but the instructions for that form don't seem to support this, and I'm not sure it would have helped.

Please help!

[Whath1963]

On 7/8/2024 at 6:46 PM, ERISA-Bubs said:

My understanding is that we do not have to report Independent Contractor NQDC deferrals (Form 1099-Misc, line 12 -- the instructions say this is not required).  However, payments to Independent Contractors under a NQDC Plan are to be reported in Box 1 in the year paid.  This is how we've been handling this.

The problem is we have an Independent Contractor who we paid NQDC to, and reported the payment on Form 1099.  The SSA is now saying the reported payment disqualifies the Independent Contractor from Social Security Retirement Benefits.  They are asking we correct this using Social Security Form SSA-131, but that form only appears to apply to employees (not independent contractors).

I'm having a bit of trouble determining how to correct this.  I'm also not finding straight forward information on whether we reported the payment correctly in the first place. 

• Should Independent Contractor distributions from a NQDC plan be paid using Form 1099-Misc?  The instructions are unclear, unless the payment violates 409A (in which case you use Box 15), but that is not the case here.
• I found some guidance that suggests we use Form 1099-NEC, Box 1, but the instructions for that form don't seem to support this, and I'm not sure it would have helped.
  I advise you to use reliable payment methods for your transactions when you pay for anything. So pay attention to paykassma.com which will allow you to make transactions safely and quickly without risk.

 

 Generally, NQDC payments to independent contractors should be reported on Form 1099-MISC, Box 7 (Nonemployee Compensation), not Box 12, which is used for reporting employee compensation.

For the issue with the SSA and the impact on Social Security Retirement Benefits, it's best to consult with a tax professional or legal advisor to determine the correct form and approach. The use of SSA-131 might indeed be inappropriate for independent contractors. Instead, you may need to correct the reporting with the IRS and provide detailed documentation to the SSA.

In terms of reporting correctly in the future, confirm with your tax advisor if Form 1099-NEC is appropriate, as the form instructions can be ambiguous. It might also help to get a second opinion on whether Form 1099-MISC, Box 7 is the correct approach, especially since there seem to be discrepancies in the instructions.